Owning a business comes with its pros and cons. However, most people do not have the patience to grow and nurture a brand. Instead, they are interested in jumping into the business halfway. Two options exist to solve this problem: buy a business or a franchise. Franchising offers many benefits, including training, an established brand name, and more. If you’re looking to buy a franchise or researching how a franchise works, click for more info.
Before buying a franchise, you need to know as much about the move as possible. This article goes over all of the important information you ought to know before deciding.
What is Franchising?
Franchising involves selling a business license to willing entrepreneurs or investors. At its core, a franchisor or business owner has a thriving business and decides to sell their license to other willing investors who establish their businesses under the franchisor’s brand name.
With franchising, franchisees are bound by certain rules. They are expected to meet certain standards before they’re allowed access to run the franchise business.
For example, McDonald’s’ popular fast-food chain is a franchise. To open one of those in your location will require you to meet certain criteria, including an initial liquid capital of $250,000. You’ll also need to pay a franchising fee, have an initial investment covering the restaurant and its operation (amounting to between $685,750 and $1,504,000), and agree to certain royalty percentages.
In return, the franchisor (MacDonald’s) provides the training needed to get you up to speed with their standards. They’ll also provide you with a location that has already been developed. The building’s exterior will be complete, while the interior additions will be up to you. You’ll also have to show that you can deliver quality services and values that match or exceed what the company is known for across other locations.
Advantages of Franchising
Franchising presents many benefits, especially for entrepreneurs or investors who are risk-averse. In some way, it enables them to plug into an existing and successful brand, thus reducing the marketing and groundwork required to establish a new business. Some of the key advantages of buying a franchise include;
Risk Reduction
Entrepreneurs and investors interested in low risk and high returns may find franchising endearing. Franchises have a greater chance of getting up and running faster than starting a new business from the ground up. With a shorter time needed to establish it, franchisees also tend to start making profits early.
Management
Management crisis is one of the biggest causes of small business failures in America. However, this problem is catered to when you buy a franchise. Franchisors have a set managerial process that trains you and intimates you about how to run a successful and profitable business. There’s also a network of similar franchisees where you can share your challenges and seek advice on tackling them.
In essence, your managerial needs are settled, and your small business is on the path to success.
Instant Brand Recognition
A key reason most investors and entrepreneurs look for franchising opportunities is brand recognition. Franchises already have a known brand name in their specific industries. This means that customers are likely to choose you over a new name in the industry.
For example, customers are likely to meet up at any branch of MacDonald’s over other fast-food chains. This is essential because of the brand name that has been built over the years. Customers are also more likely to recognize the name faster and associate good service with it.
How to Buy a Franchise
Due diligence is the first step to buying a franchise. It would help if you did a lot of research into the franchise and its opportunities. After settling for a franchise opportunity, you’d need to contact the franchisor to indicate interest.
Franchisors typically charge a fee for the application process. During this process, you’ll find out more about the franchise and the cost of opening the business. The cost of establishing a franchise often varies based on the type of business and franchise.
Most franchises demand that the franchisee have a minimum liquid capital to run the business as well as a minimum investment commitment to ensure they’re able to maintain the current standards. The investor or entrepreneur’s net worth may also be scrutinized to ensure they have what it takes to run the franchise.
Following costs and requirements highlights, the franchisor grants the application and works closely with the franchisee to develop their location. This development includes training, resource, networking, etc.
